House majority files bill for income tax, use of Fund earnings

JUNEAU (AP) — A fiscal plan proposed by Alaska House leaders Friday would reinstitute a personal state income tax for the first time in decades and use earnings from Alaska’s oil-wealth fund to help pay for government.

It’s not the first bill this session that would tap Alaska Permanent Fund earnings and change how the annual dividend that Alaskans receive from the wealth fund is calculated. But it’s the only one that has income tax provisions tacked on.

While many legislators see some use of permanent fund earnings as inevitable as Alaska grapples with a multibillion-dollar deficit, an income tax could be a tough sell, particularly with the Senate’s Republican-led majority, which has said it would see securing additional budget cuts and the use of fund earnings as big wins this session.

The bill, introduced by House Finance Committee, calls for annual draws from permanent fund earnings of 4.75 percent of an average of the fund’s market value. One third of the draw would pay for dividends. The rest would go to the state treasury.

While the fund’s principal is constitutionally protected, its earnings, from which dividends are derived, can be spent, if lawmakers choose.

Under the new House bill, committee co-chairman Rep. Paul Seaton, a Homer Republican, said dividends are expected to start out at about $1,100. Dividends hit an all-time high of $2,072 in 2015, but they were slashed to $1,022 — about half of what they otherwise would have been — by Gov. Bill Walker last year after lawmakers failed to pass a deficit-reduction plan.

Seaton sees the approach in House Bill 115 as simpler than one proposed by Walker, which calls for a higher draw from the oil-wealth fund and would base a portion of the dividend on a share of state mineral royalties.

The bill also establishes an income tax under which people would be taxed at 15 percent of the amount they pay in taxes to the federal government, or $25, whichever is greater. That means if you owe the federal government $5,000, you would pay $750 in state taxes.

The tax rate is more than double what Walker proposed last year. The previous income tax was repealed more than 35 years ago.

Alaska is one of seven states with no income tax. The proposal also includes a capital gains tax and an option for residents to apply all or part of their dividends to their tax bill.

The other committee co-chairman, Rep. Neal Foster, a Nome Democrat, said the aim is for fair fiscal plan that spreads the impacts. Both residents and non-residents, for example, would be subject to the income tax. The House also is looking at oil tax and credit changes.

Speaker Bryce Edgmon, a Dillingham Democrat, said other ideas for addressing the deficit might still come forward.

Several minority House Republicans voiced their opposition to the income tax provision Friday.

Rep. Dan Saddler, an Eagle River Republican, said his caucus would give the bill fair consideration. But he said he worried that linking two contentious issues was setting the stage for the kind of gridlock experienced last year.